It’s in the Books: Tax Cuts Save Economies

The two major parties in Washington have often been defined by their main economic principles: the Democrats want to tax more and spend more and the Republicans want to tax less and spend less.

This debate has been ratcheted up, first with the fight over extending the Bush tax cuts and now with the debt ceiling. But as with most things in Washington, the solution to the problem can be found in history.

While the impact of the Bush tax cuts is still being written, the result of Reaganomics is clear as day. In 1981President Reagan issued a major tax cut slashing income tax rates by 25% across the board. That dropped the highest marginal tax rate to 50%; he later dropped it to 28% before leaving office. The economy was deep in recession before these cuts came to be. After, GDP skyrocketed to nearly 5%--how we would love those kind of numbers today!

Although the national debt back then was only a $one trillion-- yes I said only a trillion!

Revenue is always a concern, but cutting back the tax rates ended up boosting revenue because productivity was no longer being choked off. The trickle down effect is easy to point out: people were keeping more of their money from Uncle Sam and were more able to spend more of it on their business or on fun stuff - either way the economy benefitted.

The 1960s painted a similar picture: for those of you who can't remember back that far - the top tax rate before President Kennedy took office was a staggering 90%! Even that was too high for a Democratic president who moved swiftly to lower the rate to 70%, although the changes didn't make their way through congress until after Kennedy was assassinated.

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Again tax revenue catapulted, more than tripling from 1960 to 1968. Unemployment, which was also a major benefactor of the Kennedy tax cuts fell from an already-low 5.8% to under 4%. The men that started this all: Presidents Harding and Coolidge brought tax rates from 77% to 25% in 1925.

As we focus on education in America, hopefully this information can be used to educate those in Washington who say we have to tax more in this country to boost revenue!

Stop hiding behind the national debt - and face reality - we have a spending problem in this country, not a revenue one. Tax cuts have saved economies throughout history - and this economy needs more saving than ever.